A Survey of Perspectives on the Future of the Accounting Profession, Part II

Huber, Payne, and Others’ Predictions

Byron Henry, PhD, CPA, and Margaret Hicks, PhD

In 1968, professor Howard Stettler made six predictions on the future of the accounting profession. In the years since his speech, others have offered differing prognostications on the state and direction of the accounting profession. In 2003, the American Assembly met to consider the current state of the profession, its desired future state, and what steps were needed to bridge the gap in the aftermath of numerous financial scandals and the passage of significant legislation (American Assembly, The Future of the Accounting Profession, 2003). This group concluded that the Sarbanes-Oxley Act of 2002 (SOX) symbolized an erosion of public confidence in the accounting profession, and identified the following conditions as possible causes for the decline:

The growth of complex, prescriptive rules that provided opportunities for managers to satisfy the letter, but not the spirit, of laws and regulations

The lack of understanding regarding the certainty and precision of the audit process, which has been described as the “brilliant illusion of exactitude”

Structural changes in the profession that discourage the retention of expert staff, such as a ban on offering consulting services to audit clients

Looking ahead, the American Assembly predicted that the balance sheet would be more flexible, would adapt to a wide range of industries and circumstances, and include non-financial information.

Changing Marketplace

A separate study by Ric Payne noted that historical bottom-line results are lagging indicators of success, while people prefer lead indicators instead to help them make more informed decisions and take calculated risks (R. Payne, “Where Is the Profession Heading—Part II,” white paper, Principa, 2002-2003). Measures of this type are not currently addressed in GAAP. Payne reasoned that if accountants do not develop and provide such measures, other professionals will—and occupy a higher position in the information value chain.

Payne described current professional entities as consisting of two distinct groups: large firms, and small- and medium-sized firms, and described the profession as “matured with limited opportunity for growth in either revenue or profit due to a continuation in the offering of the same services as in the past.” He noted that an increased intensity of competition, coupled with a serious shortage of talent and its impact on salaries, has placed greater pressure on firm profit margins. Payne further noted that increased competition would come from adjacent areas, such as the technology and financial services sectors. In his opinion, the 1998 American Express Tax and Business Services case altered the business landscape for accountants, because it dismantled their protected environment that had been in place for more than a century. In a research series focused on expected changes in the accounting profession in 2020, Intuit noted that competition in the industry will intensify as new entrants, outsourcing, and automation displace accounting professionals—especially for routine and lower-value services (“Intuit 2020 Report: Future of the Accounting Profession,” Intuit 2020 Research Series, 2011, http://http-download.intuit.com/http.intuit/CMO/intuit/futureofsmallbusiness/intuit_corp_vision2020_0111v5.pdf).

Pervasive Technology

Payne believed that technology would be a major driver of change; yet, whereas past technology led to improvements in the productivity of data processing and report generation, the future would be marked by the intelligent interpretation of information and decision-making support. According to Intuit, firms should expect accounting to shift its focus from computation to consultation, as clients increasingly rely upon their CPAs to analyze business information, support decisions, and provide strategic advice (Intuit 2011). Moreover, as more CFOs become CEOs, accountants will need to possess more strategic views rather than focus on the numbers.

It has been suggested that by 2020, accountants will not focus on transactional work, but rather will place value on functions that cannot be automated or outsourced (M. Wilkinson, “Glimpse into the Future of the Accounting Profession,” Charter, March 2009, pp. 32–36). Greater value will be placed on work that requires ingenuity, creativity, and innovation, while reporting and measurement will be delivered in real time. Clients are likely to become more demanding, and globalization will continue to drive the need for businesses to provide continuous levels of service and responsiveness. Because today's consumers turn to the Internet and other online information sources for immediate access to information, traditional marketing will not be enough to attract new clients. Accounting firms will need to have an online and mobile presence, and physical onsite presence will become less important (Intuit 2011).

A Changing Population

Due to demographic factors, competition for skilled labor will increase globally. Workers with specializations will have greater opportunity to move between companies, organizations, and countries. Longterm employment relationships will be less common for accountants. Growth is expected in the contingent workforce—freelancers, contractors, and part-timers, rather than traditional employees. Accounting firms will need to offer flexible work plans to recruit and retain talent to keep pace. Staffing at firms will need to reflect and support the growing needs of multinational clients. As work-from-home policies become more prevalent, strong firm leadership will be necessary to manage the morale of remote workers. Globalization will require accounting professionals to master new skills, knowledge, and standards (Intuit 2011). In a world where people meet face-to-face infrequently, education and qualifications will become more important (Wilkinson, 2009). Women are expected to make up the majority of new entrants to the profession and a growing percentage of senior executives (Intuit 2011).

Increased Specialization

Payne suggested that the profession will evolve to produce two distinct groups of accountants: auditors and general business advisors. American Assembly participants inferred that future preparers and auditors of financial information would rely less on specific rules and more on judgment, and even suggested that current students did not need to specialize in accounting to enter the profession, instead developing a strong understanding of business in theory and practice (Assembly 2003). Intuit offered a contrary opinion, inferring that growing business complexity, knowledge requirements, regulation and legal changes, and client expectations will favor accounting specialists over generalists. Nonetheless, the assembly commented that students should develop forensic accounting skills, increasingly sought on all engagements with a perceived heightened risk of fraud (Assembly 2003).

In summary, the following predictions regarding the future of accounting can be drawn from these studies:

Accountants will be expected to serve as advisors and participate more in decision making, with less emphasis on transactional work and report generation (Payne 2003; Assembly 2003; Intuit 2011).

Accountants will pursue more education and specialization as firms seek more ways to evaluate the qualification of workers (Wilkinson 2009).

Firms will continue to struggle to recruit and retain staff, who will opt for more flexible and transient work arrangements (Wilkinson 2009; Intuit 2011).

Firms will seek to develop practice niches, such as forensic accounting, to increase profit margins; this may lead to further consolidation (Assembly 2003; Intuit 2011).

Despite the many expected changes, trust will remain the hallmark of the accounting profession (Intuit 2011).

Many, however, believe that this trust has been lost, and that accounting can no longer be considered a profession—this perspective is explored in the following section.

The Fall of the American Accounting Profession

William D. Huber concluded that the American accounting profession has “forfeited” its right to be called a profession. His argument is that the accounting profession was legally created and protected for the sole purpose of issuing audit opinions on public companies, and once it extended to provide services beyond those for which it was created, it ceased to exist as a profession (William D. Huber, “The History of the Decline and Fall of the American Accounting Profession,” International Journal of Economics and Accounting, vol. 4, no. 4, 2013).

Professions exist due to societal demand for specialists; Society creates a system to supply the demand, and suppliers are rewarded. In the case of accounting and auditing, the demand for services was created to address a heightened need for accountability during volatile economic periods. Congress mandated the auditing service that became the core service of the accounting profession (K. Wang, Y. Xu, “Whither the Public Accounting as a Profession: Historical Lessons of Auditor Independence in the U.S.,” Journal of Academy of Business and Economics, April 2008, pp. 127–136). Xu and Wang reported that the general public and regulators easily accepted the accounting profession because of the concept of auditor independence.

The rise and eventual decline of the American accounting profession can be linked to several significant legislative events: namely, the ratification of the U.S. Constitution, the passage of the 1896 New York State law establishing the CPA license, the Revenue Act of 1913 instituting federal income taxes, and the federal securities laws of 1933 and 1934 that required audits of public companies (Huber 2013). Huber believes, however, that the creation of the Financial Accounting Standards Board (FASB) and Public Companies Accounting Oversight Board (PCAOB) later stripped the profession of its power and status. Another observer, Stephen A. Zeff, noted that the AICPA's loss of control over accounting and auditing standards was “devastating” to the profession (S. A. Zeff, “How the U.S. Accounting Profession Got Where It Is Today: Part I,” Accounting Horizons, September 2003a, pp. 189–205).

The profession continues to aggressively compete with various types of management consulting firms (Xu and Wang, 2008). The value of the audit relies on the assumption that auditors are independent of their clients, and some academics argue that the increase in management consulting activities has diminished the value of the audit (Xu and Wang, 2008). Xu and Wang further postulated that, despite the increased audit demand created by SOX, the market would return to earlier levels, when firms were pressed to find alternate sources of revenue. This increased competition, coupled with the PCAOB issuing auditing standards and trying to reduce audit costs, may again threaten auditor independence and the future of the profession.

Striving to be “all things to all people” has diminished the profession's innate value as the sole provider of the audit. Specialty certifications were initially viewed as measures to allow CPAs to better compete with other service providers in the accounting field, but other groups have never threatened CPAs’ ability to provide the audit service—and thus, to protect the public (Huber 2013).

Future Implications and Complications

The profession must be ever more proactive in anticipating factors that will likely affect the services it provides and those individuals who provide them. New strategies must be developed to educate and train new professionals, to foster higher ethical standards, to develop and promote new business models—all of which will allow accountants to be viewed as both trusted preparers and auditors of information.

Will the profession return to serving the interest of its clients and the public—or will it continue to pursue its own self-interest? This is the primary question to be answered in determining the direction of the American accounting profession. However the business environment evolves in the future, the accounting profession must work to reestablish its brand in trust.

Byron Henry, PhD, CPA. Assistant Professor. Department of accounting, finance and economics, College of Business and Graduate Studies, Bowie State University, Bowie, Maryland.